Obamacare Replacement Act – Senate Bill 222 by Senator Rand Paul – KY

Lots to like and consider here. We need more details about how tax equalization in the group market vs the individual market will be handled. The expansion of uses and benefits of HSAs is robust and will go along way to establishing more ways to self-insure and less reliance on networks and government programs; both are a good thing. The flexible, market-friendly Interstate Market for Health Insurance Cooperative Governing of Individual Health Insurance Coverage will be a welcome change. Again, devil is always in the details. Stay tuned for more details and insightful analysis here on the Sovereign Patient; we will post them as available.

Some highlights:

Effective as of the date of enactment of this bill, the following provisions of Obamacare are repealed:

Individuals who receive health insurance through an employer are able to exclude the premium amount from their taxable income. However, this subsidy is unavailable for those that do not receive their insurance through an employer but instead shop for insurance on the individual market.

Equalizes the tax treatment of the purchase of health insurance for individuals and employers. By providing a universal deduction on both income and payroll taxes regardless of how an individual obtains their health insurance, Americans will be empowered to purchase insurance independent of employment. Furthermore, this provision does not interfere with employer-provided coverage for Americans who prefer those plans.

Expansion of Health Savings Accounts:

Tax Credit for HSA Contributions

Provides individuals the option of a tax credit of up to $5,000 per taxpayer for contributions to an HSA. If an individual chooses not to accept the tax credit or contributes in excess of $5,000, those contributions are still tax-preferred.

Maximum Contribution Limit to HSA. Removes the maximum allowable annual contribution, so that individuals may make unlimited contributions to an HSA.

Eliminates the requirement that a participant in an HSA be enrolled in a high deductible health care plan. This section removes the HSA plan type requirement to allow individuals with all types of insurance to establish and use an HSA.

This would also enable individuals who are eligible for Medicare, VA benefits, TRICARE, IHS, and members of health care sharing ministries to be eligible to establish an HSA.

Allowance of Distributions for Prescription and OTC Drugs o Allows prescription and OTC drug costs to be treated as allowable expenses of HSAs.

Purchase of Health Insurance from HSA Account o Currently, HSA funds may not be used to purchase insurance or cover the cost of premiums. Allowing the use of HSA funds for insurance premiums will help make health coverage more affordable for American families.

Medical Expenses Incurred Prior to Account Establishment o Allows qualified expenses incurred prior to HSA establishment to be reimbursed from an HSA as long as the account is established prior to tax filing.

Administrative Error Correction Before Due Date of Return o Amends current law by allowing for administrative or clerical error corrections on filings.

Allowing HSA Rollover to Child or Parent of Account Holder o Allows an account holder’s HSA to rollover to a child, parent, or grandparent, in addition to a spouse.

Equivalent Bankruptcy Protections for HSAs as Retirement Funds o Most tax-exempt retirement accounts are also fully exempt from bankruptcy by federal law. While some states have passed laws that exempt HSA funds from being seized in bankruptcy, there is no federal protection for HSA funds in bankruptcy.

Certain Exercise Equipment and Physical Fitness Programs to be Treated as Medical Care. Expands allowable HSA expenses to include equipment for physical exercise or health coaching, including weight loss programs.

Nutritional and Dietary Supplements to be Treated as Medical Care o Amends the definition of “medical care” to include dietary and nutritional supplements for the purposes of HSA expenditures.

Certain Providers Fees to be Treated as Medical Care o Allows HSA funds to be used for periodic fees paid to medical practitioners for access to medical care.

Capitated Primary Care Payments o HSAs can be used for pre-paid physician fees, which includes payments associated with “concierge” or “direct practice” medicine.

Provisions Relating to Medicare o Allows Medicare enrollees to contribute their own money to the Medicare Medical Savings Accounts (MSAs).

Increases access to individual health coverage by allowing insurers licensed to sell policies in one state to offer them to residents of any other state.

Exempts issuers from secondary state laws that would prohibit or regulate their operation in the secondary state. However, states may impose requirements such as consumer protections and applicable taxes, among others.

Prohibits an issuer from offering, selling, or issuing individual health insurance coverage in a secondary state: If the state insurance commissioner does not use a risk-based capital formula for the determination of capital and surplus requirements for all issuers. Unless both the secondary and primary states have legislation or regulations in place establishing an independent review process for individuals who have individual health insurance coverage; or The issuer provides an acceptable mechanism under which the review is conducted by an independent medical reviewer or panel.

Gives sole jurisdiction to the primary state to enforce the primary state’s covered laws in the primary state and any secondary state.

Allows the secondary state to notify the primary state if the coverage offered in the secondary state fails to comply with the covered laws in the primary state.

Keep in mind a tax credit option like the one proposed here is a true a dollar for dollar credit; not a tax deduction. More importantly, it is not a payroll deduction to fund the HSA as you might now be used to. In other words, funding won’t be effected if the refrigerator breaks down.

Think of it as similar to the ObamaCare subsidies, but instead of being paid to the insurance company it is paid to the individual. It allows much more flexibility with how subsidy dollars are used and how HSAs are funded and how they are utilized. It also makes them much for economically effective because it allows consumer to control much of the first dollars spent, thus it creates a situation where providers have to produce value to compete for those dollars rather than just relying on being in the network.

It adheres to the concept that “money should follow people”. So as proposed, a person could accept the credit which is swept into their HSA account which under this proposal could then be used to purchase insurance or any other qualified expenditures. Current HSA rules prohibit funds from being used to pay premiums. The idea is that if it is utilized as intended, over time an individual could essentially self-insure a larger and larger portion of their expenses and just maintain a high-end policy that is very inexpensive. If they turn down the credit (not sure why they would) it would probably be a situation where they were better off to accept an alternative employer-sponsored deal. There isn’t enough detail in the synopsis to know for sure how this will be paid out… age tiers or income based or phase out thresholds, etc…